Types of ben­e­fits your em­ployer may of­fer

Em­ploy­ers typ­i­cally of­fer you life and dis­abil­ity ben­e­fits ob­tained at favourable group rates in or­der to sweeten your em­ploy­ment con­tract.

These ben­e­fits may be struc­tured in a num­ber of ways, and your em­ployer may of­fer a va­ri­ety of struc­tures with­out you, as an em­ployee, be­ing aware of this, Hugh Hack­ing, the head of re­tire­ment fund so­lu­tions at Old Mu­tual Cor­po­rate, says.

Hack­ing says em­ploy­ers who con­trib­ute to an um­brella re­tire­ment fund (a fund in which mul­ti­ple em­ploy­ers par­tic­i­pate) like­wise use a va­ri­ety of group life struc­tures:

Ap­proved scheme: group life, lump-sum dis­abil­ity and/or funeral cover within your re­tire­ment fund You and your em­ployer con­trib­ute to the fund. The fund may use a por­tion of the con­tri­bu­tions to pay pre­mi­ums for group life cover, lump-sum dis­abil­ity and funeral cover for the mem­bers of the fund.

These are known as “ap­proved” group risk ben­e­fit schemes.

If you die or are dis­abled be­fore re­tire­ment, the fund will re­ceive the pol­icy pro­ceeds. In the case of dis­abil­ity, the dis­abil­ity ben­e­fit is paid to you. In the case of death, the pro­ceeds and the fund credit are paid to your de­pen­dants, as de­cided by the trustees of the fund.

Lump sums paid to you from the fund are taxed in your hands ac­cord­ing to the re­tire­ment fund lump-sum tax ta­ble. This pro­vides for a once-off tax-free amount of R315 000 on re­tire­ment or death; there­after, set tax rates ap­ply, which de­pend on the amounts re­ceived.

Un­ap­proved scheme: group life, dis­abil­ity, in­come pro­tec­tion and/or funeral cover di­rectly from an in­surer, paid for by your em­ployer Your em­ployer may pay pre­mi­ums di­rectly to an in­surer for lump-sum dis­abil­ity cover and/or in­come pro­tec­tion cover for its em­ploy­ees, group life cover and/or funeral cover for its em­ploy­ees’ fam­i­lies.

These poli­cies are known as “un­ap­proved” group risk ben­e­fit schemes.

In­come pro­tec­tion poli­cies are de­signed to pay you a monthly in­come to re­place the in­come you lose on be­com­ing dis­abled and un­able to work. In­come pro­tec­tion poli­cies dif­fer from lump-sum dis­abil­ity poli­cies that pay you a lump sum should you be­come dis­abled.

If you are dis­abled be­fore re­tire­ment, your em­ployer may re­ceive the pol­icy pro­ceeds and pay them over to you. If you have nom­i­nated your ben­e­fi­cia­ries to re­ceive the ben­e­fits on your death and you die be­fore re­tire­ment, the ben­e­fits may then be paid di­rectly to your ben­e­fi­cia­ries.

Your em­ployer may pay the pre­mi­ums on your be­half as a ben­e­fit on top of your salary or sim­ply of­fer you the op­por­tu­nity to par­tic­i­pate in such a group scheme but ex­pect you to pay the pre­mi­ums from your af­ter­tax salary, in which case the pre­mi­ums will re­duce your salary.

Where you have paid the pre­mi­ums from your af­ter-tax salary, the pro­ceeds of the poli­cies will gen­er­ally be paid to you tax-free. The ex­cep­tion is pre­mi­ums paid for an in­come pro­tec­tion pol­icy, be­cause you en­joy a tax de­duc­tion for these pre­mi­ums. There­fore, the monthly in­come paid to you will be tax­able.

Where your em­ployer pays the pre­mi­ums as an additional ben­e­fit for you, you may be li­able for a tax­able fringe ben­e­fit. If the pol­icy is not an in­come pro­tec­tion one, when the lump-sum pro­ceeds are paid to you, these will gen­er­ally be tax-free.

How­ever, if the pol­icy pays out to your em­ployer and your em­ployer uses the pro­ceeds, for ex­am­ple, to pay you a salary when you be­come dis­abled, the salary paid will be taxed.